November 24, 2011 / 4:04 PM / 8 years ago

UPDATE 2-Italy oil sector fears inevitable ban on Iran crude

* Italy relies on Iran for around 13 pct of its crude

* Industry body to meet govt on Monday to discuss sanctions

* Italian oil companies say sanctions would be disastrous (Adds detail, quotes)

By Jessica Donati

LONDON, Nov 24 (Reuters) - Italian sanctions prohibiting imports of crude oil from Iran are inevitable and will come at a cost to the region’s oil companies, the director of Italy’s oil industry body said.

“There is nothing we can do to prevent sanctions, given the political orientation of the government today,” Pietro de Simone, director of Italy’s Unione Petrolifera (UP), told Reuters on Thursday.

Pressure from the United States to isolate Iran over its nuclear plans has mounted and the EU has agreed in principle to new sanctions on Iranian people, assets and companies.

Italy relies on Iran for around 13 percent of its crude oil needs, equivalent to over 10 million tonnes per year (around 200,000 barrels per day).

Sanctions on Iran would cut off another source of heavy crude after a ban deliveries from Syria - which previously supplied Italy with around 3 percent of its oil - are already putting Italian companies under pressure.

“Not having access to Iranian crude will be a disaster, that’s clear enough to me,” a trader based in Italy said.

Italian oil companies have assessed the impact of a ban on Iranian crude and their views have been collected by the UP into a report presented to the government last week.

They oppose sanctions on Iranian imports on the basis they will punish European firms, and instead provide an unfair advantage to traders in the East who will be able to continue purchasing the crude at a cheaper price.

“Embargoes hurt Europe, not the U.S., or India and China. With this crisis, what sense is there in saddling ourselves with this burden that won’t resolve the situation,” said a trader with an Italian oil company.

Toughened sanctions against Iran are due to be discussed at an EU foreign ministers’ meeting on Dec. 1.

OPPOSITION

The UP will meet with Italian ministries on Monday to discuss how sanctions may be tailored to limit pain for companies already struggling with high oil prices and worries about Europe’s debt crisis throttling the economy.

Iran is OPEC’s no. 2 oil producer and the main recipients of its oil are the countries that have been the focus of Europe’s debt crisis in recent weeks.

Italy, Spain and Greece rely on Iran for around 13 percent of their crude oil needs, according to U.S. government data.

“The problems faced will be both the complexity of sourcing alternative crudes as well as absorbing an increase in oil prices,” de Simone said.

One measure could be to allow Italian companies between 6-12 months to substitute Iranian crude, most likely with similar grades from Saudi Arabia or Russia.

The process of replacing Iran’s heavy crude oil will be time-consuming because a proportion of Saudi Arabia’s exports are already tied up in term deals.

It is also complicated by the rising cost of Russian crude oil, which has recently jumped to trade at unusual premiums to the European benchmark dated Brent.

But Italy’s oil traders say the industry body is doing too little to fight the advent of sanctions and that the loss of Iranian crude would be a disaster.

One industry source complained that the report had watered down the issues highlighted by Italian oil companies and was unhappy with its final format. (Reporting by Jessica Donati; Editing by Anthony Barker)

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